If you have sufficient emergency funds, then it provides you with a piece of mind and prevents you from financial distress. It also reduces stress associated with various physical ailments like anxiety and insomnia,
Emergency Fund for Employees in India
Most Indians are nowadays financially unprepared for dealing with job losses and medical emergencies. Out of 5,769 salaried employees who were surveyed, only 27% of them have an emergency fund and insurance.
Keeping this in mind, some employers realise the value of helping their employees in any emergency situation or retirement. Thus, they offer emergency fund for employee to prepare them for their basic needs at the time of financial crisis.
To know more about what it is and how to build it, read on further.
What Is an Emergency Fund?
An emergency fund is a certain amount of money that is kept aside so that people can use it in times of financial distress. The main purpose of keeping these funds is to optimise their financial security which can be used to meet unanticipated expenses, such as major home repairs, illness, etc.
Though an emergency fund is important for everyone, it is an absolute necessity for those who have an irregular source of income. In fact, to encourage employee emergency fund, many employers even provide standard programs.
Why Emergency Fund Is Important for Employees?
One of the biggest challenges that Indian employees are facing right now is planning their financial goals. This is because some people don’t know where to invest, some people end up making wrong investments and some don’t have any proper idea regarding financial planning.
This makes an emergency fund for employee the much-needed financial cover to help them in meeting their financial goals. Some other reasons are as follows:
- Most employees are doubtful about the employer’s provided health insurance as it is not enough for dealing with health emergencies.
- It will reduce their financial stress in the long run to some extent and they will feel more empowered to perform in their job.
- It will avoid them from tapping into retirement accounts, which might set them back at the time of withdrawal.
How to Build an Emergency Fund for an Employee?
An emergency fund for employee is exclusively designed for their last-minute, unplanned expenses. Here are some ways discussed in which employee can build their emergency fund:
- Employee-Only Contributions: Here employees choose to contribute some amount of money in the form of payroll deductions from their paychecks.
- Employer-Contributions: Being an employer you can also provide some incentives to your employees and encourage them to contribute this amount to their employee emergency fund.
- Crowdfunded Approach: In this model, employees are encouraged to contribute some amount of money as a generalised fund throughout the year. In the time of emergency, employees can apply for an emergency fund as and when needed.
In addition to this, the employer should also educate and empower their employees for improving their money management skills and the importance of financial planning.
How to Manage Emergency Fund by an Employee?
Managing emergency fund for employee will definitely provide you peace of mind. Here are some ways discussed to manage it effectively:
Automate Your Savings Account: Your savings account is managed automatically with depositing your monthly paycheck amount into it. This will help in establishing your monthly saving goals without affecting your checking account.
Keep Savings-Focused Apps: Link your spending account with the savings-focused apps. This app uses mobile technology every time you make a payment. It rounds up your transaction and the left-over amount is automatically getting transferred to your savings account.
Save Your Tax Refunds: Though this opportunity comes once a year, it is a good option to boost your emergency fund. While filing taxes, when you consider a refund, ensure to get that directly deposited in your emergency fund account.
These are some of the most efficient ways in which an emergency fund is managed by employees.
What Is Employee Emergency Fund Program?
The Employee Emergency Fund Program is specifically designed for providing limited financial assistance to those eligible employees who are unable to meet their essential expenses due to economic hardships during any emergency situations.
As this is not an employment benefit, it can be discontinued at any moment and is not guaranteed at all.
Where Employees Can Park Their Emergency Fund?
Being an employee, you can easily park your emergency fund in various places, like:
High-Yield Savings Account: Not only it offers competitive interest rates but also offers easy accessibility.
Traditional Savings Account: If your bank offers you a good interest rate with better terms, then you can even stick to your savings account for saving emergency corpus. This is one of the most commonly used accounts for saving emergency fund for people.
Another good option for parking your emergency fund is online-only banks. These banks typically charge lower fees and offer higher yields than normal banks.
Apart from this, one can also save it in money market accounts, credit union accounts, etc.
Where to Invest Employee Emergency Fund?
Before planning to invest your emergency fund in any unplanned expense, wait for some time to examine the seriousness and emergencies of the situation. Not every unplanned expense is a dire emergency situation, so set some guidelines for you beforehand.
At the time of unexpected medical expenses, paying rent in case of income loss, family emergency, or emergency home repairs, one should plan to invest emergency savings.
Also, in a situation when inflation is high and recession is looming, one can invest in an emergency fund.
What are the Tips to Build an Emergency Fund by an Employee?
The employee should consider following these tips for building an emergency fund:
- Consider making a budget that will help you to calculate your expenses, income, and savings more efficiently.
- Determine the goal of your emergency fund as per your income and try your best to fulfil it.
- Set up a direct deposit account that will automatically deposit amount from your paychecks and other sources.
- Try to boost your savings gradually over time.
- Save the income that comes from unexpected sources.
- Save cash incentives offered by the bank or other resources.
These tips will help the employees in keeping a track of meeting their financial goals.
Therefore, employers should prioritise creating an emergency fund for employee to encourage them to overcome any financial challenges with ease. This will also offer the employees peace of mind and they will experience higher loyalty and retention. Additionally, it will also increase their productivity.
FAQs About Emergency Fund for Employees in India
Usually, it’s not at all a good idea to invest your emergency fund. These should be saved and should only be spent on unpredictable financial situations.
Money-market accounts, at credit unions or banks, are considered as low risk. Thus, they are considered as an ideal option for an emergency fund.
Inflation can eat up your earned interest. Also, as emergency funds are not intended to grow wealth, interest is generally not a concern.
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- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
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